Bank of America adjusts inflation forecast upward for Türkiye

U.S.-based investment bank Bank of America (BofA) revised its inflation forecast for Türkiye on Monday, adjusting the rate to 28.1% from the previous estimate of 25.7%. The bank also raised its year-end policy interest rate projection to 32.5%, up from 30.5%, citing the recent political turmoil across the country.

In addition, BofA updated its outlook for the Turkish central bank‘s upcoming monetary policy meeting, shifting its stance from an anticipated 200 basis point cut in April to a decision to hold rates steady.

The bank estimated that the Central Bank of the Republic of Türkiye’s (CBRT) net reserves fell sharply by $11.2 billion on March 19, with a total decline of approximately $21-23 billion by the end of that week.

This drop was attributed to the CBRT’s currency interventions aimed at stabilizing the Turkish lira. The outflow was primarily driven by a decrease in foreign investment, especially in the foreign exchange (FX) sector, while local FX demand remained limited and was mostly driven by corporate activity, according to BofA.

Political uncertainty expected to ease

Despite these challenges, BofA analysts predict that political uncertainty is likely to ease in the near future, especially in light of Istanbul Mayor Ekrem Imamoglu’s arrest. Feedback from local residents during the bank’s recent field visit indicated that, while legal proceedings are expected to continue, the market now has a clearer understanding of the situation.

The economic administration is believed to be in control, with policymakers reaffirming their commitment to restoring stability and continuing efforts to reduce inflation. Despite the recent turbulence, political support for this program remains strong, the bank added.